Deck 18: Financing Foreign Trade

Question 1

RJR Nabisco sells its export receivables to a firm that takes responsibility for collecting payment from the importers. RJR has used

A) accounts receivable financing
B) factoring
C) forfaiting
D) letter of credit

Answer 1

B

Question 2

When factoring is done on a nonrecourse basis, the _______ has title to the receivables and the _______ is responsible for credit checking and collecting the receivables.

A) factor, factor
B) factor, borrowing firm
C) borrowing firm, factor
D) borrowing firm, borrowing firm

Answer 2

A

Question 3

Which one of the following conditions is NOT required for a draft to be negotiable under the U.S. Uniform Commercial Code?

A) to be in writing
B) signed by the drawer
C) an open amount of money
D) an unconditional order to pay

Answer 3

C

Question 4

An exporter shipping goods to a nation that may impose currency controls will seek an L/C that is

A) revocable
B) clean
C) documentary
D) confirmed by a domestic bank

Question 5

The party to a draft who signs and sends the draft to the second party is called the

A) drawer
B) payee
C) drawee
D) broker

Question 6

Which one of the following is an advantage to open account financing?

A) high risk
B) seller must finance production
C) increased risk from currency controls
D) no customer resistance

Question 7

Most L/Cs issued in connection with global trade transactions are

A) documentary
B) clean
C) revocable
D) created by a combination of a buyer and a seller alone

Question 8

Eximbank has recently become more aggressive in fighting perceived abuses by foreign export?credit agencies. One area that Eximbank has targeted is

A) foreign mixed?credit financing
B) inexpensive political risk insurance
C) inexpensive credit risk insurance
D) preliminary commitments

Question 9

The only U.S. agency dedicated solely to financing and facilitating U.S. exports is the

A) Eximbank
B) Foreign Credit Insurance Association
C) Bankers' Association for Foreign Trade
D) Agency for International Development

Question 10

Which of the following payment methods provides both parties with a strong measure of protection against commercial and political risks?

A) Cash in advance
B) Letter of credit
C) Draft
D) Consignment

Question 11

Which of the following L/Cs is safest for the exporter?

A) revocable, confirmed L/C
B) irrevocable, unconfirmed L/C
C) irrevocable, confirmed L/C
D) revocable L/C

Question 12

Which of the following functions does a draft NOT perform?

A) to provide written evidence, in clear and simple terms, of a financial obligation
B) to enable both parties to potentially reduce their costs of financing
C) to provide a negotiable and unconditional instrument
D) to offer the exporter greater safeguards than a letter of credit in securing repayment from the importer

Question 13

Why is Eximbank financing often referred to as financing of "last resort?"

A) it will not provide financing unless the U.S. exporter is doing business in more than one country
B) it will not provide financing unless private capital is unavailable
C) fees are extremely high for guarantees and insurance
D) the Eximbank authorizes loans for only the worst credit risks

Question 14

Which one of the following countries has the reputation for the greatest length of time for companies to collect on the average bill?

A) Iran
B) India
C) Taiwan
D) Germany

Question 15

Which of the following is NOT an advantage to the importer of L/C financing?

A) any documents required are carefully inspected by clerks with years of experience
B) an L/C is about as good as cash in advance
C) the importer using an L/C can usually command better credit terms and/or prices
D) L/C financing may be cheaper than the alternatives
E) all of the above are advantages of the L/C to the importer

Question 16

Countertrade transactions will most probably take the form of

A) barter or buyback
B) credit card purchases
C) cash in advance
D) open account terms

Question 17

Which of the following payment methods provides the exporter with the strongest protection against risk?

A) Cash in advance
B) Letter of credit
C) Draft
D) Consignment

Question 18

Suppose the Fluor Corporation is seeking to bid on a construction project in Turkey. Which Eximbank program will be most useful to Fluor?

A) "standby" loan commitment
B) Eximbank payment guarantee
C) preliminary commitment
D) Eximbank loan guarantee

Question 19

Which of the following organizations was created by the Bankers' Association for Foreign Trade to mobilize private capital for financing the export of big?ticket items by U.S. firms?

A) Eximbank
B) Private Export Funding Corporation
C) Foreign Credit Insurance Association
D) Bankers' Export Financing Association

Question 20

An exporter manufacturing a specialized piece of equipment can hedge the risk that its customer will cancel the contract before shipment by obtaining a

A) consignment contract
B) open account
C) bill of lading
D) letter of credit

Question 21

Which of the following firms would find a factor most useful?

A) Levi Strauss, which has been shipping jeans to the same customers in 120 countries for over 40 years,
B) Brown and Root, which manages major construction projects around the world
C) RC Cola, which periodically ships a small order of soft drinks overseas
D) IBM, which exports mainframes and other expensive equipment to customers in over 100 countries around the world

Question 22

Which of the following does NOT accompany a documentary draft?

A) bill of lading in negotiable form
B) commercial invoice
C) insurance certificate
D) consular invoice

Question 23

Which one of the following is NOT a true economic rationale for countertrade?

A) many Third World countries use countertrade to conserve what little foreign exchange they have
B) the goods taken in countertrade are usually the least difficult to market
C) countertrade enables members of cartels such as OPEC to undercut an agreed?upon price without formally doing so
D) the trade may circumvent tariffs

Question 24

Which of the following attributes of a bankers' acceptance greatly enhances its marketability?

A) the authenticity of an accepted draft is separated from the underlying commercial transaction
B) the accepted draft may not be dishonored for reason of a dispute between the exporter and importer
C) the accepted draft is automatically guaranteed by the Eximbank
D) both a and b

Question 25

Microsoft sells software to a French firm. In return, the French firm's bank, Credit Agricole, acknowledges it will pay Microsoft after the software is delivered to its client. Microsoft has most probably used

A) accounts receivable financing
B) factoring
C) forfaiting
D) letter of credit

Question 26

Which of the following is NOT an advantage to the exporter of L/C financing?

A) an L/C eliminates credit risk if the bank that opens it is of undoubted standing
B) an L/C reduces the danger that payment will be delayed or withheld due to exchange controls or other political acts
C) payment is only in compliance with the L/C's stipulated conditions
D) an L/C guards against pre-shipment risks

Question 27

Which of the following is NOT an important attribute of a bankers' acceptance?

A) makes an unconditional promise to pay the holder of the draft a stated amount on a specified day
B) effectively substitutes its own credit for that of a borrower
C) creates a negotiable instrument that may be freely traded
D) offers the holder a binding agreement to repayment by the exporter if the importer defaults

Question 28

Which one of the following is NOT true when shipping goods under documentary time drafts for acceptance?

A) the exporter is extending credit to the importer
B) the exporter is relinquishing control of the goods in return for a signature on the acceptance to assure it of payment
C) the importer is no longer bound to pay the draft to the exporter
D) a bill of lading will be the most important document of the transaction

Question 29

Precor sells exercise equipment to thousands of health clubs and sporting goods stores around the world. Its average order size is about $3,500. Which of the following techniques would you recommend to Precor to deal with its credit risk?

A) insure the receivables through the FCIA, which will charge a 1.2% fee to cover 90% of the receivables
B) use a factor, who will charge a 1.3% export factoring fee
C) request letters of credit from customers. The customers will have to pay $75 plus 0.5% for each letter of credit. To remain competitive, Precor will have to reduce its prices to reimburse customers for their L/C costs
D) all are about equally acceptable

Question 30

Caterpillar Tractor sells heavy construction equipment to a Polish firm. In return, the Polish firm issues a promissory note to Caterpillar promising to pay for the equipment over a five?year period. Caterpillar sells the note to Deutsche Bank at a discount. Caterpillar has used

A) accounts receivable financing
B) factoring
C) forfaiting
D) letter of credit